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Optimal redistributive taxation in a multi-externality model

This paper extends the previous literature on optimal redistributive taxation in the presence of externalities to a multi-externality setting. While taxes on income and on 'clean' commodities are still unaffected by the externalities, which confirms previous results, I find that the existence of more than one externality-generating commodity has important implications for the optimal Pigouvian tax rates. In general the Pigouvian parts of taxation depend also on the externalities induced by the consumption of the other commodities, implying that the interdependence of the externality-generating commodities is relevant for tax policy.

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Paper provided by The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria in its series NRN working papers with number 2011-07.

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Length: 13 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:jku:nrnwps:2011_07
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  1. Jukka Pirttilä & Matti Tuomala, 1997. "Income Tax, Commodity Tax and Environmental Policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(3), pages 379-393, July.
  2. Creedy, John, 2001. "Tax Modelling," The Economic Record, The Economic Society of Australia, vol. 77(237), pages 189-202, June.
  3. Creedy, John & Gemmell, Norman, 2009. "Corporation tax revenue growth in the UK: A microsimulation analysis," Economic Modelling, Elsevier, vol. 26(3), pages 614-625, May.
  4. John Creedy & Norman Gemmell, 2010. "Modelling Responses to Profit Taxation over the Economic Cycle: The Case of the UK Corporation Tax," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(3), pages 207-235, September.
  5. Ruud de Mooij & M.P. Devereux, 2009. "An applied analysis of ACE and CBIT reform in the EU," CPB Discussion Paper 128, CPB Netherlands Bureau for Economic Policy Analysis.
  6. Micheletto, Luca, 2008. "Redistribution and optimal mixed taxation in the presence of consumption externalities," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2262-2274, October.
  7. Bond, Stephen & Van Reenen, John, 2007. "Microeconometric Models of Investment and Employment," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 65 Elsevier.
  8. Thiess Buettner & Georg Wamser, 2009. "The impact of nonprofit taxes on foreign direct investment: evidence from German multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(3), pages 298-320, June.
  9. Ruud A. de Mooij & Sjef Ederveen, 2008. "Corporate tax elasticities: a reader's guide to empirical findings," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 680-697, winter.
  10. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 1998. "Externalities and optimal taxation," Journal of Public Economics, Elsevier, vol. 70(3), pages 343-364, December.
  11. Stefan Bach & Hermann Buslei & Nadja Dwenger & Frank Fossen, 2008. "Dokumentation des Mikrosimulationsmodells BizTax zur Unternehmensbesteuerung in Deutschland," Data Documentation 29, DIW Berlin, German Institute for Economic Research.
  12. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  13. Kopczuk, Wojciech, 2003. "A note on optimal taxation in the presence of externalities," Economics Letters, Elsevier, vol. 80(1), pages 81-86, July.
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